Portfolio managers seek clarity on norms

The portfolio management services (PMS) segment is awaiting clarification in the guidelines put out by the Securities and Exchange Board of India (Sebi). The portfolio managers have sought clarification in the market regulator’s recent norms, asking them to maintain assets of each client separately and not in a pooled account.

The PMS managers have made a representation to Sebi, highlighting the operational inconvenience in implementing the new guidelines. Sebi had given a timeframe of six months for portfolio managers to fall in line with the changed regulations.

POOLING PROBLEM

Portfolio managers have sought clarification in the market regulator's recent norms, asking them to maintain assets of each client separately and not in a pooled account

 

PMS managers have made a representation to Sebi, highlighting the operational inconvenience in implementing the new guidelines

 

Most brokers said it will take at least two to three weeks for fund managers to deploy money into the market after shifting to a non-pooled system

“It is not easy to open demat accounts in remote locations. Our custodians do not have the capability to service these accounts in far off places,” said a PMS head at an asset management company.

PMS managers have asked Sebi to permit them to open a demat account with a broker and have a common bank account for all assets managed by them under the particular PMS product. They have also asked Sebi to permit the placement of orders in a common code.

However, some PMS managers have decided to use technology for order generation and segregation of orders. Miles Software and Wealth Spectrum provide this technology.

“We are trying to figure out how to go about with it. In case of the PMS business, each investment has to be broken into each investor’s investment. We may make use of technology for this,” said Achal Kumar Gupta, chief executive officer and managing director, SBI Mutual Fund, which currently has an institutional PMS service and is about to launch one for retail clients.

When Sebi first came out with the guidelines, market watchers had voiced concern that smaller PMS products (with a ticket size of Rs 5 lakh) would be rendered unviable since brokers’ commission on a Rs 5-6 lakh PMS account is about Rs 10,000 ( 2 per cent management fee).

However, several PMS managers such as Motilal Oswal and Sharekhan have not closed down these products. Sharekhan has made the transition to non-pooled account system, while Motilal Oswal is going slow on the PMS business because of bad market conditions.

In May 2008, Sebi had come out with a circular saying, “Portfolio managers would be required to keep assets of each client separately and not in a pooled manner.”

Most brokers said it will take at least two to three weeks for fund managers to deploy money into the market after shifting to a non-pooled system.